Improving long-term portfolio risk and return by using appreciated stocks for charitable donations
DOI:
https://doi.org/10.61190/fsr.v27i3.3397Keywords:
Portfolio risk, Diversification return, Tax-efficient investing, Capital gains, Stock donationAbstract
Stock investors who are charitable donors can minimize capital gains taxes and improve portfolio diversification by donating their most appreciated shares instead of cash, and then investing the freed-up cash in the portfolio’s least-weighted stocks. The charity is indifferent to the donation method, and the investor receives the same charitable deduction. Monte Carlo simulations show that a donor-investor using this method enjoys substantially higher wealth and lower portfolio risk, particularly over longer time horizons. This strategy can be integrated with tax loss selling and some limited gain harvesting to further increase after-tax returns and reduce risk.
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